Parent and Subsidiary Companies

Section 34 implements EU Council Directive 2003/123/EC which amends an earlier Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and their subsidiaries of different Member States (known as the “Parent/Subsidiaries Directive”). The Parent/Subsidiaries Directive which was concerned with eliminating double taxation on dividends across borders within the EU from subsidiaries to their parents, was implemented by Section 831 TCA 1997. This section makes a number of changes to Section 831 to give effect to the new Directive as follows:

• The shareholding threshold for a company to be considered as a parent company is reduced from 25 per cent to 5 per cent;
• Irish branches of companies of other Member States will be entitled to the same reliefs as Irish resident companies where they received dividends from their subsidiaries;
• References to Irish unlimited companies are deleted from Section 831. Unlimited companies were not covered by the earlier Parent/Subsidiaries Directive but are now covered following its amendment by the new Directive. Consequently, a specific reference to them in Section 831 is no longer necessary.
• Tax paid by lower tiers of subsidiaries may be taken into account for the purpose of giving credit relief to an Irish company that receives dividends from its subsidiaries in EU Member States subject to a shareholding of 5 per cent at each tier.
• Relief from double taxation under the Directive is specifically provided for in the unusual scenario where a subsidiary is regarded as a company in its home Member State but is considered to be transparent for tax purposes in the Member State of its parent company.
• Finally, provisions relating to allowing a credit against Irish tax on dividends received by a parent company for withholding tax applied to those dividends pursuant to derogations from the 1990 Parent/Subsidiaries Directive are modified. References to Germany, Portugal and Greece are removed as the Directive now prohibits withholding tax on relevant dividends in those Member States.